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UNITED NATIONS CAPITAL DEVELOPMENT FUND Microfinance |
Issue 16 / September 2005 |
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Editor's Note — Microfinance and the Millennium Development Goals
In last month's edition of Microfinance Matters we took issue with unsubstantiated claims that microfinance alleviates poverty, and highlighted current efforts to collect real data on the industry. But we're still not content. This month we extend that complaint to the specific idea that microfinance will help achieve the Millennium Development Goals (MDGs): we remain intent on demanding hard evidence to prove this theory because we so badly want it to be true. And let's be honest. The MDGs could use some help right about now. While there have been successes, Africa, for example, is failing terribly - to the true misery of the people who live and die this tragedy each day. So why not pull out all the stops and use every tool available? (particularly one that works at the level of the individual, and sidesteps the top-down quagmire.) Though the UN Millennium Project report Investing in Development mentions microfinance, it's not a prominent feature of the proposed solutions - and maybe that's our fault. Maybe we've been going about it all wrong, as some of this month's contributors suggest. Our Featured Guest is Mr. Salil Shetty, Director of the Millennium Development Goals (MDG) Campaign, who gives us a good glimpse of how microfinance is perceived in the greater field of development. Mr. Shetty suggests that the microfinance industry should "start engaging," and "become involved in the global fight against poverty". What? We're not involved already? While the microfinance industry spends a lot of time talking about its "crucial" role in eradicating poverty, maybe we should look more closely at who exactly we've been talking to - ourselves, apparently. Christina Barrineau, Chief Technical Advisor to the International Year of Microcredit, recently co-authored a reader's guide to the role of microfinance in the current major development initiatives, starting with the UN Millennium Project. She suggests a reconceptualization of microfinance and argues that microfinance will be most effective in contributing to the MDGs when it is treated simply as finance, albeit in small amounts. She further calls for a shift away from seeing development as poverty alleviation to understanding development and poverty reduction as overarching results of wealth creation for poor people. Meanwhile, the proceedings of the 2005 World Summit, held September 14-16 at UN headquarters in New York, seemed to offer some hope for the star-crossed romance between microfinance and the MDGs. Not only did our favorite poverty alleviation tool actually stick it out to be included in the highly contested Outcome Document, it was endorsed in speeches by heads of state from all over the world, including the influential Least Developed Countries Chairman, Mathieu Kérékou, President of Benin. Back in DC, the World Bank is looking for, and finding, the sought-after evidence that financial development reduces poverty - which supports the idea that we should stop trying to prove that microfinance will solve all of the world's problems and start treating microfinance simply as finance. Asli Demirguc-Kunt, Finance Research Manager, argues that financial sector development is a crucial factor for achieving the MDGs based on new findings that poverty is reduced when private credit accounts for a high percentage of GDP, while Senior Adviser Stijn Claessens agrees that finance has a profound impact on alleviating poverty, and examines what access to finance really means. In terms of supporting microfinance in doing what we want it to - in this case, contribute to the MDGs - the Consultative Group to Assist the Poor (CGAP) is playing its part by calling for better use of donor aid. Microfinance Specialists Alexia Latortue and Tamara Cook assert that no amount of money will help achieve the MDGs if it is not spent more effectively, and present CGAP's current aid effectiveness initiative which uses microfinance as a test case for other development sectors. Meanwhile, microfinance is increasingly recognized on the ground as a concrete strategy to reduce poverty, and it turns out that it is widely featured - in 44 of 56 national poverty reduction strategies. In the case of Mongolia, the government has supported microfinance as a method to achieve a pro-poor, pro-growth economic solution, while in Kenya, the Economic Recovery Strategy focuses on private sector investment, with a particular emphasis on microenterprise. In the Voices of Microfinance discussion section of this issue, members of the microfinance community were asked for hard evidence to prove that microfinance helps achieve the MDGs, but while most respondents said they thought microfinance is a powerful tool, few actually provided proof - only perpetuating the very type of unfounded claims we are trying to substantiate. One respondent also made the compelling argument that perhaps microfinance and the MDGs serve different target audiences entirely. Ultimately, whether microfinance alleviates poverty or not, whether it contributes to the MDGs or not, we can all agree that everyone, poor or rich, deserves a safe place to save money and a secure way to access credit. These are worthy goals in and of themselves.
Vanessa Ward
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